This would both make higher education more affordable for students and ensure the government recoups much more money, the free market think-tank argued.
It highlighted that Theresa May’s plans to increase the repayment threshold from £21,000 to £25,000 would lead to up to three quarters of loans being written off.
Michael Johnson, author of the CPS’s Tuition fees: a fairer formula report, said the government’s expectation that only a third of loans will be written off is a “significant underestimate” with a figure between 60% and 75% more likely.
Johnson welcomed the government’s acknowledgement that a fairer funding split between students and the state is required but argued that it had missed an opportunity to address the looming write-off threat.
It added that the “simplest ad fairest” response would be to lower fees to either £5,000 or £7,500 a year and cut the interest rate charged to either the RPI or CPI index of inflation.
“Crucially, the current repayment threshold should be maintained,” the CPS said.
“These proposals would result in a lower debt burden for graduates, and also ensure that the government gets much more of its money back.”
Johnson acknowledged that his proposals would create a funding shortfall for universities. This would need to be met by central government, he said.
But the costs could be mitigated by separating funding for teaching and research, and treating the latter as investment rather than expenditure, as recommended under international accounting rules.
